UPS preferred stock pays $7 in annual dividends. If your required rate of return is 12.43...

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UPS preferred stock pays $7 in annual dividends. If your required rate of return is 12.43...

UPS preferred stock pays $7 in annual dividends. If your required rate of return is 12.43 percent, how much would you be willing to pay for one share of this preferred stock? Round the answer to two decimal places.

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Answer 1

Answer #1

Price of share can be computed using formula for present value of perpetuity as:

PV = C/r

C = Annual cash flow = $ 7

r = Rate of return = 12.43 % or 0.1243

PV or Current share price = $ 7/ 0.1243 = $ 56.3153660498793 or $ 56.32

We can pay $ 56.32 for one share of this preferred stock.

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Answer 2

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UPS preferred stock pays $7 in annual dividends. If your required rate of return is 12.43...

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